Spatially Varying Transform (SVT) is a technique introduced earlier to improve the coding efficiency of video coders [1][2]. SVT allows the position of the transform block within the macroblock to vary in order to better localize the underlying residual signal. The coding gains of SVT come with increased encoding complexity due to the additional need in the encoder to search for the best Location Parameter (LP) which indicates the position of the transform. In this paper, a new technique called Prediction Signal Aided Spatially Varying Transform (PSASVT) is proposed that utilizes the gradient of prediction signal to eliminate the unlikely LPs. As the number of candidate LPs is reduced, a smaller number of LPs are searched by encoder, which reduces the encoding complexity. In addition, less overhead bits are needed to code the selected LP and thus the coding efficiency can be improved. Experimental results show that the number of LPs to be tested in RDO is reduced on average by more than 20%. This reduction in encoding complexity is achieved with a slight increase in coding efficiency, as the number of candidate LPs is reduced. The decoding complexity increase is only a little.